Korean Overseas Securities and Global Investment Sentiment

Abstract

Changes in the CB premiums are negatively related to the stock market movements of Korea and the U.K., mainly attributable to the fact that premiums are approximately the difference between CB prices and underlying stock prices. Further, the finding that CB prices are less sensitive to stock market movements than underlying stock prices can be a cause of the negative coefficient. Changes in fund premiums are positively related to stock market movements, in sharp contrast to the findings of Korean overseas securities. Consequently, we may suggest that fund premium changes are a proxy for global investors' investment sentiments toward the Korean stock market. The positive effect of foreign investment in the Korean stock market on the premium of DRs reinforces the finding.